Super Micro Computer, Inc.

SMCI Details

Super Micro Computer, Inc. (NASDAQ: SMCI) is a global provider of efficient, high-performance server and storage technology solutions for enterprise data centers, cloud computing, artificial intelligence, and edge computing systems. Its portfolio ranges from servers, storage, blade and workstations to full racks, networking devices, server management software and technology support and services.

Latest News:

• New Product Offerings: On October 12, 2021, SMCI launched new systems under its Supermicro X12 series based on the trademark NVIDIA Ampere architecture GPUs and 3rd Gen Intel Xeon Scalable processors. The servers can withstand complex AI applications that require low latency and high performance.

Q1FY22 Results:

• Robust Growth in Revenue: The company recorded a substantial 35.48% increase in net sales to USD 1.03 billion in Q1FY22 (ended September 30, 2021) compared to USD 762.25 million in Q1FY21.
• Slight Decline in Net Income: Its Q1FY22 net income was USD 25.44 million, slightly lower than USD 26.60 million reported in Q1FY21, owing to increased research and development (R&D) expenses.
• Decent Balance Sheet: SMCI exited the quarter with a cash balance of USD 270.05 million and total debt of USD 278.81 million.

Key Risks: 

• Competition Risk: SMCI is in the server and storage solution business, and it faces direct competition from global technology companies like Cisco, Dell, Hewlett-Packard Enterprise, and others, as well as application-optimized server vendors like Inspur, Quanta Computer, and Wiwynn. In recent years, fierce pricing rivalry has dragged down market prices for many of the company's items. If this pattern continues, the company's financials may suffer.

Outlook:

• Q2FY22 Estimates: In its Q1FY22 earnings release, SMCI stated that it expects its Q2FY22 revenue to range between USD 1.1 – 1.2 billion, with GAAP and non-GAAP EPS ranging from USD 0.60 – 0.80 and USD 0.70 – 0.90, respectively.
• FY22 Guidance: The estimated FY22 revenue range is USD 4.2 – 4.6 billion, with GAAP EPS of USD 2.77 (USD 3.20 on a non-GAAP basis).

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SMCI Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

SMCI's share price has surged 28.19% in the past week and is currently close to the higher end of its 52-week range of USD 27.53 to USD 47.14. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 85.13, indicating an overbought zone. We have valued the stock using the EV/Sales multiple-based relative valuation methodology and arrived at a target price of USD 42.47.

Considering the significant uptick in the stock price in a short period, current valuation, and other technical indicators, we believe the decent business fundamentals are sufficiently reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 46.98, up 0.86% as of November 08, 2021, 9:53 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV. 

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